What is the difference between a fixed and variable credit card APR?

Credit card companies offer a few different options when it comes to the APR (Annual Percentage Rate). Some will offer a fixed APR, while others have variable rate APR cards available. Before making a decision about which one is right for you, it’s a good idea to consider both options carefully.

Fixed Rate Credit Card

A fixed rate credit card may be attractive to some customers because the interest charged on the balance owed stays constant. The cardholder isn’t faced with any surprises on their bill. Those are definite advantages to choosing this type of card for your needs.

The disadvantage to choosing a credit card with a fixed rate is that the rate isn’t necessarily written in stone. The credit card company has the right to change the APR at any time it chooses. The customer must be given notice of the change in writing. As long as the credit card company informs the customer of the new interest rate at least 15 days before it takes effect, the company is within its rights to make a change when it chooses.

Another disadvantage to choosing a credit card with a fixed APR is that if interest rates decrease then the interest rate you are charged stays the same. If rates go up, the customer who has chosen a fixed rate APR card is protected from the higher charge, so long as the company doesn’t choose to raise the rate.

Variable Rate Credit Card

A variable rate credit card means that the rate you are charged for unpaid balances changes as the prime interest rate goes up and down. The credit card company charges the customer the prime rate plus an additional rate of interest on unpaid balances. When rates are going down, this type of credit card is a good deal for consumers. More of the customer’s payment goes to pay down the balance.

When the prime rate increases, the APR on the credit card also goes up. Unlike a fixed rate APR, the customer doesn’t need to be notified in advance when his or her interest rate is going to go up.

Which Credit Card is Best?

Before you make a decision about the best credit card for your needs, consider your options carefully. Some credit cards come with a low APR for the first six or twelve months after the account is opened. After that point, the APR is adjusted to the “normal rate” for that type of card.

This option is attractive to a customer who is looking for a low interest credit card to transfer a balance to. Before signing up for one of these offers, find out whether the low APR applies to balance transfers only or to new purchases on the account as well.

A credit card with a variable interest rate may be subject to a “floor rate” of interest. This means that there is a limit to how low the rate will go on this type of card. The credit card company still charges a certain minimum level of interest on unpaid balances, no matter how low the prime rate goes. When the prime rate is on the rise, the credit card company passes on the full amount of the increase to its customers.

The ultimate decision about whether a fixed or variable rate APR is best will depend on whether you think that interest rates are likely to stay low or will rise in the future. Even if you decide to go with the “security” of a fixed rate credit card, keep in mind that the company is only required to give you 15 day’s notice of an increase in your interest rate.

Some companies will send a formal letter advising you of the change. Other companies take a different approach to letting their customers know that their interest rate is going to change. Customers should look at their credit card statements carefully to see if the company has included a sheet of paper in the statement indicating the interest rate will change.

It’s a good idea to consider other credit cards on the market to ensure that you are getting the best possible rate for your situation. A person who has a good credit score should be able to qualify for a better rate of interest on their credit cards, whether they choose a fixed or variable rate card. You can start looking at your credit card options by clicking on the credit card Chaser tool on this page. It’s free to use and you can get the information you need to compare the best credit cards today!

Disclaimer: This content is not provided or commissioned by American Express, Visa, MasterCard, Discover, or any other credit card company or issuer. The opinions expressed here are the author's alone, not those of any credit card company or issuer, and have not been reviewed, approved or otherwise endorsed by any credit card company or issuer. Credit Card Chaser may be compensated through various affiliate programs with advertisers. As always, Credit Card Chaser is an independent website commmitted to helping people research credit card offers and find the best credit card!